Korean publicly listed companies, the necessity of reforming the merger announcement system to escape undervaluation has become prominent

South Korean listed companies need to reform the disclosure system related to mergers and acquisitions to address undervaluation issues. This stems from the need to strengthen the board of directors’ fiduciary duty to shareholders and to promote more transparent decision-making through disclosures.

The current Capital Market Act and its enforcement decree only impose disclosure obligations on “resolution determinations” by the board, so even if a proposed acquisition is shelved, there is no basis for disclosure. This perpetuates the practice of non-public transactions centered around major shareholders, harming the interests of all shareholders. In fact, in South Korea, 69% of companies listed on KOSDAQ have a price-to-book ratio below 1.0, with 40% evaluated at less than 0.5, indicating a state of “severe undervaluation.”

Lee Ryong-yu, representative of the Economic Research Institute, emphasized the necessity of restructuring the disclosure system in this context, pointing out that acquisition proposals aimed at changing management rights should be included as grounds for submitting major matters reports. He also suggested clarifying the standards and disclosure content for “serious acquisition proposals” and mandating companies to formally express their opinions on public acquisitions aimed at changing management rights.

Globally, in developed countries like the United States and Japan, if there are private equity or competing company acquisition proposals targeting undervalued listed companies, regulations require the board to thoroughly review and ensure disclosure. Since Japan released the “Corporate Acquisition Guidelines” by the Ministry of Economy, Trade and Industry in 2023, the M&A market has become more active, leading to a reduction in undervalued listed companies.

Our country also needs to learn from these advanced cases, reform the disclosure system related to acquisition proposals, and enhance the responsibility of the board. This will be key to solving undervaluation issues by protecting shareholder value and restoring market confidence. If the disclosure system is reformed in the future, it is expected to positively impact corporate transparency and shareholder value in the Korean stock market.